JYSKE Bank JUL 15 Eco Outlook Japan

8/9/2019 JYSKE Bank JUL 15 Eco Outlook Japan

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Economic Outlook - Japan

15 July 2010

Please direct inquiries, if any, to:

Peter Skttegaard emig, Senior Macroeconomic Analyst

[email protected]


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Summary - Japan Growth has been a pleasant surprise

Growth in Japan has increased significantly again following the recession that endedin the second quarter of 2009. Exports, stock adjustment and strong privateconsumption via fiscal-policy stimulus have boosted the economy. Small signseven indicate that the recovery is about to spread to investment growth and real private consumption.

. . , .

Unwinding temporary stimulus

The temporary stimulus measures are about to fade away. Exports are still expected to be supported bysolid growth in the remaining Asia but are under pressure from the weaker euro and slower growth in

the euro zone.

We expect that growth will be supported by investment in the second half of the year.

The labour market is improving slightly

Unemployment has declined since it peaked, the number of job postings has increased, the job-per-applicant ratio is growing, etc. Wage increases have changed from a negative to a positive figure. Itremains to be seen, whether the improvement is solid enough to boost private consumption, but thereare small such indications.

Deflation for some time yet There are still many idle resources in the economy, and this will continue to put a downward pressure

on prices. The pressure will abate gradually, but we do not expect positive inflation until late 2011., - .

Political reforms are uncertain The newly-inaugurated (June) Prime Minister Naoto Kan had announced that he would do an effort to

-measures to increase the consumption tax and reduce corporate taxes, etc. In the election for the upper

house on 11 July, the government lost its majority in the house, which may make it difficult toimplement reforms although the government still has the majority in the more powerful lower house.


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Strong recovery

of recession, and since the second quarter of 2009, the recoveryhas been quite solid.

We expect GDP to increase by 3.3% and 1.9% in 2010 and 2011, respectively.

Japan: GDP grow th

104

106

104

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100

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100

102

008:1

Dotted line is Jyske Bank forecast

96

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Index100=

90

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04 05 06 07 08 09 10 11


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Exports increase strongly

Following the sharp decline in exports in late 2008 and early 2009,exports to Asia and China in particular have recovered much ofthe ground lost.

We expect t at exports wi go on increasing riven y t e recovery in Asia utat a lower rate. The export sector will still be important for the Japanese

economy.


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Sharp increase in industrial production

The industrial production has increased markedly since early 2009,but it is still somewhat lower than the pre-crisis level.

Industrial sales have outgrown production for a long time, which has caused a. ,

the important stock-to-sales ratio has normalised, the positive effect from

stocks is fading away. We ex ect the industrial roduction to increase more moderatel from thecurrent level.


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Strong growth in privateconsumption expected to moderate

Private consumption has increased markedly in recent quarterssupported by various government initiatives.

The labour market is im rovin but on a small scale et and we do notexpect to see a sharp increase in employment.

Wage increases have just reached positive territory, so real wage growth isnot negative any longer.


7/11

The labour market is improving Unemployment has fallen since it peaked - although it has increased

again in the past two months.

The number of job postings has increased and the job-per-applicant ratio isgrow ng, e c. n a on, wage ncreases ave c ange rom a nega ve o apositive figure. This will usually support private consumption, but it is still highlyuncertain whether the improvement will be solid enough to lift private consumption.

There is a risk of a ver slow im rovement in em lo ment because em lo menthas fallen much less than has production. Hence, the risk of a jobless recovery isgreat, which increases the risk that private consumption will not contribute much tothe recovery.


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Record-low investment rate Investment has pulled down GDP significantly. However, after

the investment rate has fallen to a record-low level, there aresigns now that businesses have slowly started to increase investments.

We expect that investment will start to pick up in the second half of 2010.


9/11

Deflation is here to stay

Due to the deep recession, there are still many idle resources inthe economy, which will put a downward pressure on prices.

The pressure will abate gradually, but we do not expect positive inflation until late2011.

Since the Bank of Japan will not start to normalise the monetary policy until the

period of deflation is over, interest rates will not be raised until 2012 at the.

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Index


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The public purse is suffering The deep recession has squeezed the public finances further. For

the period ahead, demographic factors will cause the prospects todeteriorate further, because the total population in 2050 will have fallenby one third while the number of elderly citizens will have increased.

The process of restoring the public finances will put a damper on the

growth prospects.

Japan: Population Forecast until 2050

130

110

120

%ofGDP

1.0

00bn.yen

ber

ofpersons1000

80

90

Nu

50

60

70

Population development Population forecast

Source: Reuters EcoWin

1905 1920 1935 1950 1965 1980 1995 2010 2025 2040

40


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Discla im er & D isclosu r e

Jyske Bank is supervised by the Danish Financial Supervisory Authority.Jys e Ban s ana ysts are su ject to t e recommen ations o T e Danis Securities Dea ersAssociation on the handling of conflicts of interest within investment banks.The analysis is based on information which Jyske Bank finds reliable, but Jyske Bankdoes not assume any responsibility for the correctness of the material nor for transactionsmade on the basis of the information or the estimates of the research report. The estimates and

.personal use of Jyske Bank's customers and may not be copied.This report is an investment research report.

Co n f l i ct s o f i n t e r e st

ys e an as prepare proce ures o preven an prec u e con c s o n eres us ensur ng a ana ysesare being prepared in an objective manner. These procedures have been incorporated in the businessprocedures covering the research activities of Jyske Markets, a business unit of Jyske Bank.Read more about Jyske Bank's policy on conflicts of interest at www.jyskemarkets.comJyske Bank's analysts may not hold positions in the instruments for which they prepare research reports.

.The analysts receive no payment from persons interested in individual research reports.

Th e f i r s t p u b l i ca t i o n d a t e o f t h e r es ea r ch r e p or t

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Financ ia l m ode ls

Jyske Bank uses one or more models based on traditional econometric and financial methods. The data used

are solely data available to the public.

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oo a v ce

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JYSKE Bank JUL 15 Eco Outlook Japan